The theory and practice of Appraisal Review differs among practitioners - by Roger Durkin

Roger Durkin, Durkin Law, P.C

The theory and practice of Appraisal Review differs among practitioners. The appraisal profession includes the valuation of businesses, trademarks, inventory, machinery, equipment, antiques, jewelry, art, coins, wine, decorative art, stamps, collectibles, and real estate Property appraisals are prepared for use in collateral lending, divorce, decedent estate tax filing, equitable division, bankruptcy, tort damages, tax assessment, casualty insurance, disputes over insured casualty loss, and legal disputes over a myriad of other issues. A business appraiser, machinery appraiser, jewelry appraiser, art and antique appraiser seldom encounter a formal appraisal review. A ‘critique’ if it occurs at all, is by an opposing expert who is also unfamiliar with the theory of and practice of appraisal review under USPAP. Not all appraisers perform in accordance with USPAP. There are 16 business valuation designations and 16 slightly different sets of appraisal standards including the AICPA, NACVA, IVS, and RICS. None of the groups accepts USPAP. Then there is the AI’s guerrilla war with the Foundation, Yellow Book that contradicts USPAP, FHA, Fannie Mae’s Review Form 2000, which is not in conformity with USPAP. That is another reason why Appraisal Review is misunderstood and misused. Real property appraisers have adopted so much faith based appraisal dogma that many interpret USPAP by use of mysterious alchemy formulas. They have forgotten that a credible appraisal is not dependent on the holy trinity of all three-appraisal approaches but “requires support by relevant evidence and logic.”¹

Appraisal Review is the critical analysis of another appraiser’s appraisal report. USPAP defines Review as “the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.” A more detailed description of the Appraisal Review process is in USPAP Standard-3 In 2013 ², the International Valuation Standards (IVS) Guidance Note No. 11 governed appraisal review. IVS Guidance was very similar to Standard-3 of USPAP. IVS had stated, “Because of the need to ensure the accuracy, appropriateness, and quality of Valuation reports, valuation Reviews have become an integral part of professional practice.” Then the IVS Board decided there was ambiguity in the application of the IVS’s Review guidance. IVS announcement stated, ” there was a potential threat to the public interest if inappropriate reliance was placed on a valuation on account of it having been reviewed.³ IVS no longer has any ‘review” guidance. The CPA business appraisers conform to AICPA standards. AICPA does not have standards for Appraisal Review. NACVA defines a Business Valuation Review as “the act or process of developing and communicating a member’s opinion regarding the credibility of the work product of another valuation analyst. It is a type of service, whether in written or oral form, intended to provide to identified users that the report is credible.” NACVA describes the Appraisal Review required scope of work as “sufficient to provide a member a basis for rendering a credible ⁴ Business Valuation Review opinion regarding the relevance, reliability, completeness, and reliable application of the business valuation methodology under review, and its consistency with generally accepted valuation practices.”

Appraisal Review carries substantial risk if the Review Appraiser expresses an oral or written opinion that the underlying appraiser was not competent, not qualified, did this bad thing or did something incorrect without providing substantial evidence to support the assertions.⁵ A written review report criticizing another appraiser’s credibility can be a risky undertaking. If you publish a critical opinion (oral or written) that is not supported by evidence other than your personal experience and intuition, you may be liable for libel or slander.⁶ An appraisal Review is a published report to someone. Defamation generally relates to a publicly broadcast false statement that causes injury to the plaintiff. Unless you can prove your critical assertion with substantial evidence, you risk being sued for libel or slander. Appraisers fall into the category of professionals. Therefore, a written or oral attack, without basis (evidence), on an appraiser’s professional reputation, character, or standing may constitute Defamation Per Se.⁷  The plaintiff appraiser does not have to prove injury/damages. Injury to an appraiser’s reputation, business, profession, or calling is assumed.⁸

This risk of Defamation applies to professional association peer review committees. A Massachusetts federal jury awarded appraiser Daniel Briggs over $1 million in damages for professional libel.⁹ “The test to be applied as to the defamatory character of published words is whether in the mind of any considerable and respectable class of the community they tend to injure the reputation of the person to whom they refer and expose him to hatred, ridicule and contempt.”¹⁰

Shannon Pratt, renowned business valuation guru, said to his client that a particular business appraiser was not qualified to have performed an enterprise appraisal. One of the Plaintiffs was a former N. H. Supreme Court Justice and Congressman. The cost of defending the lawsuit was significant because Dr. Pratt lives in Oregon and sued in New Hampshire federal court. Dr. Pratt was found not liable for defamation because he had a substantial evidence basis for his opinion.¹¹

An Appraisal Review is not and should not be a personal attack. It must be an objective professional critique based on evidence measured against applicable appraisal standards, the logic of the presentation, and the credibility of the appraiser.

Rule based critique often gives way to a personal experienced based interpretation of valuation practices and becomes a personal opinion critique. The Review Appraiser has to measure the underlying report and performance against some established enforceable rule. An unsupported personal opinion based on the experience of the review appraiser is not sufficient evidence and might lead to a defamation lawsuit.

Having one’s appraisal report critically and objectively reviewed can be a significant and positive benefit to any appraiser. The majority of appraisers have not had the experience of a critical Appraisal Review therefore after a few years of practice; many appraisers develop an omnipotent attitude.

The experience of having your appraisal reviewed objectively can significantly improve your appraisal work. The ASA’s Appraisal Review Committee developed four 30-hour multi-discipline courses on appraisal review that specifically address the development and communication of an objective appraisal critique. The course material and textbooks have progressively improved because of positive critical reviews from students. In-class student have hands’-on review experience of actual (redacted) appraisals. These exercises have added practical experience to the theory of the Appraisal Review Paradigm and appraisal report writing generally.

One day, we may accept the unification of our diverse appraisal standards and thereby improve our appraisal profession. At present, the various appraisal standards and their supporting appraisal associations are like competing proselytizing religions, each with its own agenda, creed, dogma, and need to survive. Further government imposition of licensing of all real estate appraisers, machinery appraisers, and business appraisers should be carefully examined as if it were a loaded gun. Real estate appraisal enforcement of its licensing regulations has caused the demise of over 20,000 real estate appraisers since 2007. The cost of defense against licensing boards has run into hundreds of thousands of dollars. Licensing of real estate appraisers has all but destroyed the concept of a real estate appraisal designation.¹²

Whether you call your work Appraisal Review, Opposing Expert Critique, of Forensic Consulting, you should consider taking the ASA 27-hour Mass Approved Appraisal Review Course this June 8, 9, 10th at Massachusetts School of Law in Andover. ASA Course Registration at www.appraisers.org

Roger Durkin, an attorney with Durkin Law, P.C., Boston, Mass.

1. The quote is from USPAP Credible definition under Comment 2 By 2015, IVS had dropped Appraisal Review Guidance. IVS had defined appraisal review process too widely in an attempt to incorporate the many practice interpretations. 3 IVSC Standards Board meeting Thursday 25 October 2012 4 Credible means worthy of belief. Black’s Law Dictionary 5 Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 6 Libel is the written or broadcast form of defamation, distinguished from slander, which is oral defamation. 7 By itself, intrinsically. In the law of Defamation, slander or libel per se refers to certain language that is actionable as slander or libel in and of itself without proof of special damages. 8 “A defendant is liable for defamation if it publishes a “false statement regarding the plaintiff, capable of damaging the plaintiff’s reputation in the community, which either causes economic loss or is actionable without proof of economic loss.” White v. Blue Cross & Blue Shield of Mass. Inc., 442, Mass. 64, 66 (2004). 9 Daniel C. Briggs, v. Boat/U.S., Inc. and Society Of Accredited Marine Surveyors, Inc., No. 12-11795, DJC U.S. Dist. Ct, Mass. (2014) 10 Rawson v. Arlington Advocate, Inc., 336 Mass. 31, 33-34 (1957) 11 Douglas and Hewson v. Shannon Pratt and Associated Press. U.S. Fed. Dist. Court N.H. Civil 98-416-M (2000). 12 Be aware that Federal real estate appraisal law and the Agencies’ regulations prohibit federally regulated financial institutions from excluding appraisers from consideration for an assignment solely by virtue of their membership, or lack of membership, in any appraisal organization.